Health Care Costs in Retirement Will Devour Social Security Income

There’s real doubt among some people that Social Security income will be around when they retire — but perhaps not for the reasons they think.

Indeed, without reform, the Old-Age and Survivors Insurance Trust Fund is projected to sink into the red later this century if Congress doesn’t act to institute changes. But that’s not why millions of retirees may be denied the fruits of their Social Security benefits.

The reason Social Security may not be around is that much of the program’s benefits will be eaten away by health care costs.

That’s the projection from the consulting firm HeatlhView Services, which helps financial advisors with health care retirement planning.

HealthView introduced its Retirement Health Care Cost Index, which pulls data from as many as 50 million individual health care cases and other sources.

Ron Mastrogiovanni, founder and CEO of HealthView, said in a news release that although the costs are high, they are manageable for people who consult an advisor and incorporate health care costs in their retirement plans.

“The takeaway from this work is that while total lifetime health care costs will be higher than many expect, if planned for early enough, these costs are manageable,” he said. “By incorporating them in planning during working years, we believe retirees will be better positioned to make informed planning decisions and realize the retirement security they seek.”

Mastrogiovanni said the question isn’t whether Americans can afford to save for health care costs. The question is whether clients and advisors can afford not to build health care costs into their retirement plans.

Health care retirement spending projections look daunting,

An aging population, an increase in chronic diseases, a fragile Social Security infrastructure, insufficient cost of living adjustments and the limited scope of coverage under Medicare are likely to force health costs in retirement ever higher.

“Unfortunately, Social Security income will not be enough to counter these rising costs,” according to HealthView’s 2015 Retirement Health Care Costs Data Report released in March.

The math, though not overly complicated, varies widely and relies on numerous assumptions including retirement age, income and Medicare benefits and surcharges, among other factors.

But with data from 50 million individual cases, HealthView’s projections leave no doubt that for millions of retirees looking forward to a little supplementary income from Social Security, much of that revenue will disappear to pay for health care costs.

In 2015, a 66-year-old couple, the age at which people become eligible for full retirement benefits, will experience a gradual decrease in annual Social Security income as the Social Security benefit shifts to cover rising health care costs.

Here’s how the math works out, according to the report.

At age 70, annual health care costs (in future dollars) will amount to $14,148. Social Security will come in at $32,799, for an annual difference of $18,651. The percent of Social Security dedicated to health care costs amounts to 43 percent.

By age 87, annual health care costs will have gone up to $40,909, and Social Security income will also have gone up — to $45,927, for an annual difference of only $5,018. The percent of Social Security income dedicated to health care costs amounts to 89 percent, the report said.

HealthView’s projections don’t include long-term care and assume that Social Security benefits have been optimized — which is seldom the case.

The average lifetime retirement health care premiums for a healthy 65-year-old couple retiring this year and covered by Medicare Parts B, D, as well as a supplemental insurance policy will be $266,589, the report found.

Toss in that same 65-year-old couple’s dental, vision, copays and out-of-pocket expenses, and average lifetime retirement health care costs would rise to $394,954, the report also found.

For a 55-year-old couple retiring in 10 years, total lifetime health care costs would come to $463,849, the report also found.

The paper concludes that as medical costs rise and Social Security cost-of-living adjustments fail to keep pace, “health care will be among the most significant expenses for Americans in retirement.”

Many people know that health care costs are expected to eat a big part of their income in retirement as surveys of preretirees indicate that their No. 1 challenge in retirement will be to pay for health care expenses.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].